Limited Liability and Incentive Contracting with Multiple Projects

Posted: 4 Sep 2001

See all articles by Christian Laux

Christian Laux

Vienna University of Economics and Business; Vienna Graduate School of Finance (VGSF); European Corporate Governance Institute (ECGI)

Abstract

I examine a principal-agent model with multiple projects where a risk-neutral manager is protected by limited liability. The analysis has several interesting implications: (i) Incentive problems are shown to be a natural source of economies of scope, as combining multiple projects under the management of a single manager relaxes the limited liability constraint. (ii) As a result, managers may be overloaded with work and exert inefficiently high effort. (iii) The analysis has implications for the optimal allocation of projects to different managers.

Suggested Citation

Laux, Christian, Limited Liability and Incentive Contracting with Multiple Projects. Available at SSRN: https://ssrn.com/abstract=279772

Christian Laux (Contact Author)

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

Vienna Graduate School of Finance (VGSF) ( email )

Welthandelsplatz 1
Vienna, 1020
Austria

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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